Reader nominates IR35 as most damaging law of recent years

Dear Sir,

I would nominate IR35 as the single most damaging piece of legislation in recent years that needs to be scrapped as soon as possible.

My reasons for saying so are thus;

1. The IR35 legislation creates a false impression that freelance professionals such as myself have a choice about how they wish to operate within the contract market in the hi-tech industries of this country.

Those such as myself who wish to operate as freelance professionals are forced into corporate status by the agencies and client companies they wish to work with due to the Employment Agencies Act of 1988. This legislation forces us to take on corporate status whether we like it or not. Presently, there is no legal alternative to this method of operation, although I personally would prefer to operate as a self-employed sole trader, and pay schedule D National Insurance payments. Despite the fact that the Inland Revenue have been told to assess my status on each contract I perform post IR35 according to the self-employment rules, I find myself in the Catch 22 situation of actively being prevented from operating as a self-employed sole trader by government legislation enforced by the Inland Revenue!

Having forced us into this artificial mode of trading our knowledge based skills, the spin doctors of the present government now accuse us of seeking to avoid paying tax by operating completely legally within the rules they set up. Spurred on by the large consultancies who see us as cheap competition (compare the rates, consultant from large consultancy average £100 per hour, freelance contractor average £35-45 per hour), we have become targets for a massive government character assassination campaign. This in turn has set many independent professionals like myself against the government, and many have already voted with their feet, leaving this country and taking their skills and experience with them, to the detriment of UK PLC. Those of us who cannot leave due to family commitments etc, are increasingly giving up our corporate status and moving to permanent employment with one employer (though for older contractors like me this is not always possible, thus leading to early retirement or unemployment and a total waste of those skills and experience!). This has the effect of reducing the number of specialists available for short term projects in UK industry, and reduces the tax take for the Treasury as freelance professionals working through their own limited companies pay on average 1.5 - 2 times more combined income tax and NI than is paid by permanent employees.

2. There is a fundamental flaw in the IR35 legislation, as under it, we now have a dual status of being "deemed" to be employed by two different entities at the same time for the same piece of work. Firstly, as "disguised employees" of the client company for personal taxation purposes. Secondly, as genuine employees of our own companies for purposes of NI liability. So from now on we personally are liable for income tax on ALL our company turnover, as if we were genuine, not "disguised" direct employees of the client. At the same time, our companies will now become liable for employer's National Insurance payments that are 12% of all turnover over £84 per week, on ALL our company ("deemed" personal) income, less 5% to cover company running costs.

No-one can be taxed as being employed by one employer, while being assessed for NI liability as being employed by another for the same piece of work. Such a situation is entirely a fabrication of the government's making in order to squeeze the maximum tax take from small businesses, and cannot be considered either fair or legal.

No other professions or individual persons are taxed in this way, and it is this above all that has angered IT professionals such as myself. Due to the IR35 provisions, we are taxed on company invoice value as though it were personal income, and are therefore not allowed to keep profits in the company like large companies can in order to cover us for times when there is no company income, such as between contracts, when we are effectively unemployed but still employed by our companies, and so cannot claim unemployment benefit (the benefit that we actually pay NI contributions for). Furthermore, for the more successful of us who wish to expand our companies, we cannot take on employees in order to grow our businesses unless we pay them and their employer's NI contributions out of net, or already taxed, company turnover (unlike large companies who can pay all employee costs out of gross (untaxed) company turnover)!

This is not, and cannot under any circumstances be called fair, no matter what Dawn Primarolo may say to the contrary! It damages not only small business competitiveness within the UK economy, but also the UK's competitiveness within the global economy, and should therefore be consigned to the dustbin of history forthwith!

Kindest Regards,

A fully paid up member of the PCG